Ed Session 1,2

Economics • “The science which studies human behavior as a relationship between ends and scarce means which have alternative uses." by Lionel Robbins

Development • The active placement of the pieces, or the process of achieving it.

Economic Development • Qualitative measure of progress in an economy. It refers to development and adoption of new technologies, transition from agriculture based to industry based economy, and general improvement in living standards.

Economic development • Economic development is the major priority of the world’s nations. All nations are being challenged by the crucial task of improving income, well-being and economic capabilities of people. • Every year aid is distributed, investments are made, policies are framed, and elaborated plans are hatched to achieve this goal.

Economic growth and development

• Growth refers to rise in national or per capita income or product.

• Economic development implies more than increase in the production of goods and services

Libya and South Korea since 1960 would be the best example

What is economic development? • Measures of economic performance and well-being – output and income levels, rates of growth (total and per capita) (is growth = development?) – wealth (capital) – other measures of well-being (quality of life) • • • •

health, education (human capital) political freedom environmental quality culture & recreation

• Processes that increase economic performance – how does a country get more output per worker? – how does a country get more capital per worker? – what other factors can affect productive efficiency?

• Processes that increase quality of life – distribution of income & wealth (asset ownership) – investments in human capital (health, education) – political and social change

Figure 1.1 The Rich and the Poor One of the great challenges of economic development is to explain why some countries are rich and some are poor…

We have many ways to measure economic performance and wellbeing besides income…

Is economic development more than increases in income? • Sen’s “capabilities” approach – Development as Freedom – Wealth and income are not ends – “Capability to function”: what can we do with what we have? • Is a person with a $10K income in Costa Rica worse off than a person with a $20K income in Saudi Arabia? (discuss…)

The Role of Institutions • Institutions are: – Rules – Enforcement mechanisms – Organizations

• Private, public, formal, informal • The role of incentive compatibility: do rules lead to desired behavior?

The Role of Institutions • What are key institutions for a market economy to function well? – Political – Rule of Law – Definition & enforcement of property rights – Financial – Transport & Communications – Various other…e.g., NGOs…

• Ultimately how one defines economic development is a question of personal and social values… • E.g., in Todaro Ch. 1, the three core values of development are defined as: – sustenance – self-esteem – freedom from servitude

(Do you agree? Are there other values you would advocate?)

Important books • • • • • •

“Human development report” “World development report” “Economics of development” Perkins, Radelet et al “Development economics” Debraj Ray “Economics and development” Barbara Ingham “Handbook of development economics” Chenery and Srinivasan • “Economic development” Michael Todaro

Thank You! and Good Luck!